This article first appeared in The Edge Malaysia Weekly on March 8, 2021 - March 14, 2021

AFTER a delay of more than two months, the much-anticipated award of the fourth cycle of the large-scale solar programme (LSS4) is expected to be announced as early as this week, say industry sources.

With a total electricity generation capacity of 1gw or 1,000mw scheduled to be realised by 2023, this is the largest capacity offered under the LSS programme so far. For perspective, the aggregate solar capacity of LSS4 is double that of LSS3 (500mw) and bigger than the combined capacities of LSS1 and LSS2 (958mw).

LSS4 was opened for competitive bidding between May 31 and Sept 2 last year, and the contracts were supposed to be awarded last December. But the Covid-19 pandemic caused a delay, as it is learnt that the tender committee was unable to meet last year owing to movement restrictions and the reimposition of the Movement Control Order (MCO 2.0) in January and February.

While solar projects under LSS4 are worth a total of RM4 billion, which appears to be mouth-watering at first glance, industry players are quick to point out that these contracts are not as lucrative as they used to be in terms of profit margin and internal rate of return (IRR).

“I was told that the lowest bid for LSS4 is 14 sen per kilowatt hour (kWh), which is extremely low. In the previous round, in LSS3, the lowest was 17 sen per kWh,” says the CEO of a locally listed energy firm.

“Having said that, the lowest bidders will not necessarily be the winners. The government will also look at the bidders’ technical capabilities and whether their bids are financially feasible. For this round, many bidders are putting in bids of 20 to 21 sen per kWh. The smaller projects can go higher at 22 to 23 sen per kWh.”

The general manager of a power technology company concurs, saying that bidders have been very aggressive since LSS3 and this is likely to continue to be the case in LSS4. “It goes without saying that the comparative between LSS3 and LSS1/LSS2 is very far. I think when LSS4 comes out, we will see another drop.

“The lowest bidding price during the third round was 17 sen per kWh. My prediction for LSS4 is that most bidders will have to put in a bid of 20 sen per kWh to stand a chance, but I am pretty sure there will be some bidders submitting 14 to 15 sen per kWh. I feel this is a rather unhealthy trend and these are ridiculous figures. These people are spoiling the market.”

Nevertheless, the players acknowledge that generally, the local solar companies and utility firms are still keen to participate in LSS4. After all, a job is a job.

“It is true that the IRR is challenging. If you are doing engineering, procurement, construction and commissioning (EPCC), your IRR could be in the single digit at 6% to 8%. If you are an asset owner, then we are talking about low double digits. Overall, you can still make money, but the profit margin is no longer as attractive as that of LSS1 and LSS2, unless you can lease cheap land and secure a cheap loan,” says the CEO of the energy firm.

Solarvest Holdings Bhd CEO Davis Chong Chun Shiong, for one, remains optimistic about getting a slice of the LSS4 pie as he considers its bid to be competitive. “For the EPCC, we are bidding for about 1,200mw of capacity, and we hope to get 200mw to 300mw from eight to 10 projects that are worth RM600 million to RM900 million over two years,” he tells The Edge in a phone interview.

“Meanwhile, we are also bidding as an asset owner for three projects in Perak and Selangor with a total capacity of 50mw. We truly hope to win the bids, which can provide sustainable recurring income for our group.”

Solarvest — co-founded by Chong, Lim Chin Siu and Edmund Tan Chyi Boon — is a solar energy solution provider with an LSS track record of 250mw in onshore and full turnkey EPCC. The group was listed on the ACE Market in November 2019.

“This will be our first venture into LSS as an asset owner and we will continue to develop more good projects locally and overseas, which we think is the best model as it can leverage our EPCC expertise and create more exposure for our EPCC team outside the country,” says Chong.

He stresses that it is important to have the LSS programme as a base to drive the solar industry in Malaysia, to award enough projects and contracts to solar firms and to keep all of the industry players active. “It also gives us the volume to reduce engineering and construction costs. More importantly, it will help the country achieve the 20% renewable energy (RE) mix by 2025,” he adds.

“We are glad that LSS4 will provide an additional capacity of 1gw by 2023. If our country could have another 500mw or maybe even 1gw each in LSS5 and LSS6, the RE mix will be achieved.”

A solar industry veteran points out that many bidders had used the forecast price for solar panels. “In September last year, manufacturers informed us that the price would drop to below 20 US cents per watt peak (Wp). But today, the solar panel price is 28 US cents per Wp — hard luck for those who predicted low prices,” he says.

The industry veteran observes that foreign manufacturers are using solar panels as their equity on preferential shares. This brings down the project cost, so much so that they can justify their cash flow, and can expect to exit with a profit within three years.

He points out that some of the bidders are backed by public-listed companies. So, when they win contracts and filings are made with Bursa Malaysia, their share prices will rise. “That’s how these people make money … from the stock market … not the solar projects.”

The general manager of the power technology company urges the government to look at other perspectives, such as technological advancements, on top of the price factor. “The government should choose bidders that can provide long-term solutions and contribute to the country’s RE initiative. After all, solar is not just about cheap energy but also green and renewable energy, so the government should take a holistic approach,” he says.

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